In the United States, where the corporation tax rate used to be the highest among the OECD countries, a bill slashing it from 35% to 21% was passed in December 2017. France, which took the place of the US and is now ranked first, is also planning to reduce its corporation tax rate from 33.3% to 25% in the near future. Industrialized countries seem to have entered into a corporation tax competition.
Corporation Tax in Japan and Asia
Japan is not deemed as a tax-friendly country for businesses, whose current corporation tax rate is 29.74%. Comparing with neighboring countries, the figure is higher than, say, that of China which is 25%, and that of Korea which is 24.2%. Furthermore, some countries and regions have been strategically taking a tax-friendly policy for a long time such as Hong Kong and Singapore, whose rates are 16.5% and 17% respectively.
In concert with the global movement, Tokyo seems to be considering the reduction of the corporation tax rate [*1] although no official proposal has been so far made while the consumption tax is to be raised from 8% to 10% from October 2019.
Tax Relief/Exemption in National and Regional Levels
However, for startups located in National Strategic Special Zones in Japan (one of which is Fukuoka City), an existing tax reduction system, which was actually proposed by Fukuoka City, is available. Owing to the system, startups meeting a certain criteria are able to save 6% corporation tax up to five years.
In addition to the national tax level mentioned above, Fukuoka City has been implementing its original tax exemption at the regional tax level by which startups are able to save further 2% corporation tax for the same period. This is only being attempted in the city and among the said National Strategic Special Zones. By combining these two, the corporation tax for startups can be reduced to around 22%.
As for the requirements, applicants must be, among others, (1) doing an innovative business that falls into one of the following four categories [*2]: IoT (Internet of Things), International, Medical and Agriculture, and (2) started up business in Fukuoka City less than 5 years ago.
Is it appealing enough?
All things considered, the tax system is unlikely to be a main reason to choose Japan as a place to set up a business both now and in the future. However, it will be sensible to choose Fukuoka City among other cities in Japan in the light of its original tax system for those who are already interested in doing a business in Japan.
Most importantly, the attitude of the city, which can be seen from such an initiative, can encourage startups to choose Fukuoka City since it is easy to guess that the city must be startup-friendly in other respects as well.
I will cover the “Financial Aid for Renting Residential and Office Spaces” in the next article.
[*1] – Effective rate which combines national and regional taxes.
[*2] – Innovative IT is also satisfied but for the regional tax exemption only.
Disclaimer: While every effort has been made to ensure that the information on this article is accurate at the time of posting, it is not intended to provide legal advice as individual situations will differ. If you do require advice or wish to find out more about the information provided and related topics, please contact the author.